To Refinance or not to Refinance

To refinance or not to refinance? That has been the big question for many people lately. I can’t give you the answer because I don’t know your individual situation, but I hope to give you some information that might help you to decide. First, let’s take a look at how the economy is doing. I’ll explain why in just a moment.

So, how is the economy lately?

Well, existing home sales went up by 7.4% in November. That follows an increase of 10% in October. On top of that, business and corporate spending are both up and orders to U.S. factories for big ticket durable goods (excluding transportation) had gains that were twice what economists had forecast. That coupled with the fact that the four week average for new unemployment claims was down for the 17th straight week to the lowest level since September 2008 are indicators that the economy appears to be improving. The improvement may not be as fast as we would like, but moving in the right direction is a good thing. And frankly, I wouldn’t trust any huge swings at this point anyway. People and businesses move cautiously in unsettled periods like this and a sudden, dramatic positive shift would be suspect at best.

Just as the economic issues start to seem like they are improving (or have at least stopped getting worse as fast), mortgage rates are starting to go up. Luckily, rates are still attractive, just not quite at the record lows they were three weeks ago. At that point, a 30 year fixed rate mortgage had bottomed at 4.71%. Unfortunately, they are now at 5.36%. So, if you’re holding out for even lower rates, I wouldn’t. You never know which way rates might go and it’s unlikely that they’ll get much lower. Why, you ask? Well, if the economy gets better, which is the way it seems to be headed at the moment, then more people want loans. Those loans could be for their businesses, for buying homes, buying cars or simply increased credit card spending. When that demand for loans goes up, it eats up the supply of available credit. That drives up what you need to spend to purchase a loan. In other words, mortgage rates go up.

Couldn’t rates go down again?

Yes, of course rates could drop again, and they probably will a little here and there. The economy is not steady yet, after all. The big questions are:

If the rates do drop again, will you catch the change in time to lock in at the lower rate?

Will the rate be significantly lower than what is available right now?

The first question is important because we all get busy. If you’re under deadline, will you take the time to check the rates and call a mortgage broker to lock in a rate or will you be heads down trying to get the work done that pays your mortgage? The second question is important because if you wait eight months and then get a lower rate, you might have missed out on hundreds of dollars of savings a month just to save another $50-100 a month. Sure, you’ll eventually make that money up if you stay in the house long enough, but that’s only if you catch that lower rate eventually. Besides, wouldn’t a guaranteed savings on your mortgage come in handy now?

In the end, the decision is up to you, just as all financial decisions are. That’s the way it should be. All that I hope is that you take a moment to ask if refinancing might be in your best interests at the moment. If so, check out current mortgage rates and see if you can improve your financial well being by refinancing. Just make sure to check the points and fees and get yourself the best deal.